The United Arab Emirates has made significant progress in strengthening its tax system to support public health and increase government revenue. One key part of this taxation framework is the Excise Tax UAE, introduced on 1 October 2017. Unlike VAT, which applies to a wide range of goods and services, excise tax targets specific items deemed harmful. The purpose is simple: reduce consumption of unhealthy products while generating funds for public services and health awareness initiatives.
Understanding excise tax is essential for businesses involved in importing, producing, or selling excisable goods. It also helps consumers understand price changes in products like energy drinks, tobacco, and sweetened beverages. Here’s a complete guide to how excise tax works in the UAE.
What is Excise Tax in the UAE?
Excise tax is a type of indirect tax applied to goods that are harmful to human health or the environment. It increases the retail price of those products, making consumers think twice before purchasing them.
In the UAE, excise tax applies to the following categories:
1. Tobacco and Tobacco Products
All types of tobacco, including cigarettes, cigars, and electronic smoking devices, are subject to a 100% excise tax. This high rate aims to reduce smoking habits and promote a healthier lifestyle.
2. Energy Drinks
Energy drinks containing stimulants like caffeine or taurine are taxed at 100%. These beverages are known for their high sugar content and potential health risks.
3. Sweetened Drinks
In December 2019, the UAE extended excise tax to include sweetened beverages at a 50% rate. These include juices, flavored drinks, soda, and any beverage with added sugar.
4. Electronic Smoking Devices & Nicotine Liquids
E-cigarettes, vaping devices, and nicotine liquids are taxed at 100% to discourage vaping and other electronic smoking habits.
Why Was Excise Tax Introduced?
The UAE government launched excise tax for several important reasons:
1. Promote Public Health
By increasing the prices of unhealthy products, excise tax encourages people to reduce consumption. This supports national health goals and lowers the burden of diseases linked to smoking and sugar intake.
2. Generate Additional Revenue
The funds collected from excise tax help the government invest in healthcare, infrastructure, and public welfare programs.
3. Align with International Standards
Many countries impose excise tax on harmful products. The UAE follows global best practices to maintain a strong, modern tax system.
Who Must Register for Excise Tax?
Any business dealing with excisable goods must register with the Federal Tax Authority (FTA). This includes:
Importers of excisable goods
Producers and manufacturers
Stockpilers (businesses holding large quantities before tax implementation)
Warehouse keepers
Once registered, businesses must submit regular tax returns and maintain detailed records of all excisable goods.
How is Excise Tax Calculated?
Excise tax is calculated based on the retail selling price of the product or a price set by the FTA. The tax rate is applied before VAT, meaning both taxes may affect the final price.
For example:
A sweetened drink priced at AED 10 will incur 50% excise tax → AED 5
New price becomes AED 15
VAT (5%) applies on AED 15 → AED 0.75
Final price: AED 15.75
This system increases transparency and ensures consistent pricing across the UAE.
Impact of Excise Tax on Businesses
Businesses that deal with excisable products must understand their obligations. The main responsibilities include:
1. Registration
Before importing or selling excisable goods, businesses must register with the FTA and obtain an excise tax number.
2. Filing Returns
Monthly excise tax returns must be filed to report production, imports, and stock movements.
3. Keep Detailed Records
Accurate documentation is essential. The FTA may audit businesses to ensure compliance.
4. Labeling Requirements
All excisable goods must display the updated retail selling price to help consumers understand the tax applied.
Failure to comply can result in heavy fines and penalties.
Impact of Excise Tax on Consumers
For consumers, the most noticeable impact is the increase in product prices. Cigarettes, vapes, energy drinks, and sugary beverages now cost significantly more. However, the long-term aim is to encourage healthier choices and reduce lifestyle-related diseases.
Benefits of Excise Tax in the UAE
The introduction of excise tax has brought several benefits:
Reduction in the consumption of harmful products
Increased government revenue
Improved public health awareness
Alignment with global taxation standards
Encouragement of healthier lifestyle habits
Conclusion
Excise tax in the UAE is a strategic policy tool designed to protect public health, regulate consumption of harmful goods, and generate revenue for national development. Whether you’re a business owner or a consumer, understanding how excise tax works helps you make informed decisions. As the UAE continues to strengthen its tax system, excise tax remains an essential component of its long-term economic and health policies.
If you need help with excise tax registration, compliance, or tax filing, consulting a tax expert or approved FTA consultant can make the process much easier.
